06.05.202213:44 Forex Analysis & Reviews: US employment data can affect the markets

World markets continue to rumble amid unabated price growth, geopolitical tensions and growing doubts that Western elites are able to prevent the European and American economies from sliding into a deep recession.

After market sentiment slightly improved on Wednesday following the speech of Fed Chairman Jerome Powell, a new wave of fears arose because the Fed could not curb the galloping growth of inflation by raising rates, but would increase its negative effects. The US stock market collapsed, burying all hopes that it would bounce up from the lows.

As such, the heat in the market eased slightly, and now all attention has shifted to the upcoming April data from the US labor market. The forecast was a 391,000 job growth in April, up from 426,000 in March. Meanwhile, average hourly earnings are projected to correct to 5.5% y/y and maintain a 0.4% growth rate on a monthly basis.

How might US employment data affect financial markets? As investors fully understand the significant risks of a deepening economic crisis in the US on the back of high inflation and a continued cycle of higher interest rates, a weaker nonfarm payroll numbers will only fuel a sell-off in equity and government bond markets. This, in turn, will lead to a new wave of growth in dollar and, quite likely, to an increase in demand for gold as a safe-haven asset.

This scenario is most likely to happen because the reported data on business activity indicated a drop in growth, which naturally affects the number of jobs. Also, figures from the ADP showed a sharp decline, while the values of jobless claims rose.

In short, yesterday's fall may continue, unless the market sees for itself that the weakening of the situation in the labor market will not force the Fed to take a pause in raising rates. In this case, it will be possible to observe a rollback of stock indices and a weakening of dollar.